BILL ANALYSIS Ó
AB 1175
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Date of Hearing: May 18, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 1175 (Fletcher) - As Amended: May 4, 2011
Policy Committee: Revenue and
Taxation Vote: 9-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill requires the Franchise Tax Board (FTB) to revise the
personal income tax return to allow taxpayers to explicitly
designate an existing 529 college savings account for direct
deposit of the taxpayer's refund. Specifically, this bill:
1)Requires the FTB to revise the form instructions to include
information about splitting their refund, including the
ability to directly deposit a portion of the taxpayer's refund
into the Golden State Scholarshare College Savings Trust
(Scholarshare Trust).
2)Requires the Scholarshare Investment Board to provide the FTB
with a description of the Scholarshare Trust on or before a
date specified by the FTB.
FISCAL EFFECT
The FTB estimates this bill would not impact income tax
revenues. However, because it would make it easier for
taxpayers to deposit funds into a tax deferred account, it is
likely to reduce the amount of funds in taxable accounts. The
amount of revenue loss would be small, $10,000 or less. FTB
does not believe that there will be any administrative costs
associated with this bill.
COMMENTS
1)Purpose . According to the author, research shows that holding
a college savings account (e.g. a 529 account) makes it seven
times more likely that a child will attend college, regardless
AB 1175
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of income. Current law allows holders of these accounts to
designate that a portion of their tax refund be directed into
an existing 529 account. All that is needed is the account
and routing number of the 529 account. However, this option
is not stated in the state tax filing instruction and is not
commonly known. AB 1175 is a simple, low cost reform that
addresses this problem by highlighting the 529 account funding
option on state tax forms.
2)Background . Existing law provides tax-exempt status to
qualified tuition programs (QTPs), or as they are commonly
known, 529 plans, because they are governed by Internal
Revenue Code Section 529. QTPs are programs established and
maintained by a state (or by an eligible educational
institution) under which a person may purchase tuition credits
or make cash contributions to meet the qualified higher
education expenses for a designated beneficiary.
Contributions to a QTP cannot exceed the amount necessary to
provide for the beneficiary's qualified higher education
expenses and although distributions to a beneficiary are
excluded from income, contributions made to a QTP are not
deductible.
3)Related legislation . SB 323 (Oropeza), of the 2009-10
legislative session, would have allowed taxpayers to direct an
amount in excess of their tax liability to a QTP account and
was held by this committee. SB 918 (Oropeza), of the 2007-08
legislative session was similar and was also held by this
committee.
4)There is no registered opposition to this bill.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081